公共服務電力與天然氣 (PEG) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Public Service Enterprise Group third quarter 2006 earnings conference call and webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session for members of the financial community. At that time, if you have a question, you will need to press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Wednesday, November 1st, 2006, and will be available for telephone replay for 48 hours beginning at 1:00 p.m. eastern time today, until 1:00 p.m. eastern time on November 3rd, 2006. It will also be available as an audio webcast on PSEG's Corporate website at www.pseg.com.

I would now like to turn the conference over to Mort Plawner, please go ahead sir.

Thank you and good morning. We appreciate your listening in today, either by telephone or over our website. I will be turning the call over to Tom O'Flynn, PSEG's Chief Financial Officer, for a review of our third quarter results, but first I need to make a few points. We issued our earnings release this morning. In case you have not seen it, a copy is posted on our website. We expect to file our 10-Q with the SEC later today, which will contain additional information.

In today's webcast, Tom will discuss our future outlook, and I must refer you to our forward-looking disclaimer. Although we believe our forecasts are based on reasonable assumptions, we can give no assurance that they will achieved. The results or events forecast in our statements today may differ materially from actual results or events. The last word on any of our businesses is contained in the various reports we file with the SEC. As a reminder, our guidance speaks as of the date it is issued. Any confirmation or update in guidance will only be done in the public manner, generally in the form of a press release or webcast such as this. PSEG may or may not confirm or update guidance with every press release. As a matter of policy, we will not comment on guidance during any one on one meeting or individual phone call.

In the body of our earnings release we provided a table that reconciled net income to operating earnings. We've adopted this format to improve the readability of the release and to provide the required reconciliation between the GAAP term, net income, and the non-GAAP term, operating earnings. The attachments for the press release provide the reconciliation to each of our major businesses. Operating earnings exclude merger related costs and the net impact of certain asset sales and during the period presented. Operating earnings is our standard for comparing 2006 results to 2005 for all our businesses. We exclude such costs so that we can better compare our current period results with prior or future periods. Finally, Tom will take your questions at the conclusion of the prepared remarks. Please limit yourself to one question and one follow-up.

Thank you, I will now turn the call over to Tom.

Thanks, Mort. Good morning, everyone. Thanks for joining us. I hope you've had a chance to release the review we put out this morning. On this call I will briefly go over our results for the quarter [inaudible] status some of the major issues. Briefly, operating earnings for PSEG were 372 million for the quarter, an increase of 93 million or $0.34 in the third quarter of last year.

Let me just make sure the mike is on mute, please? We've got a little bit of speaker interference coming in or listener interference. Operator, if you're still there?

Yes, sir.

Can you make sure all the phones are on mike with the exception of mine? On mute?

All lines are muted, sir.

Okay. Anyway, sorry. As I said, the operating earnings for PSEG were 372 million for the quarter, an increase of 93 million or $0.34 in the third quarter of of last year. Third quarter results were strong for Power and Holdings and slightly off for the Utility.

At Power, higher prices for our generation output and strong operations boosted margins for the quarter. However, higher depreciation and the absence of an NDT restructuring gain in the same quarter last year somewhat dampened the quarter over quarter impact. PSE&G's results reflect a [delay] of rate relief caused by merger-related issues. However, we're pleased that earlier this week, we reached an agreement to settle the outstanding gas and electric cases which will allow us the opportunity to earn a fair rate of return. I'll provide for details in a moment.

For Holdings, our two Texas plants provided a significant uplift in our earnings for the quarter, both in terms of cash earnings as well as mark-to-market gains. Our overall results continue to support our 2006 operating earnings guidance of $3.45 to $3.75 a share, as well as our guidance for 2007, which is $4.60 to $5 per share. Power reported operating earnings of 203 million or $0.81 per share for the quarter, 67 million or $0.26 per share above '05 results. PSE&G reported operating earnings of 86 million or $0.34 for the quarter, lower than last year's results of 115 million or $0.47 per share. And finally, Holdings reported operating earnings of 101 million or $0.40 per share for the quarter, an increase of 53 million or $0.20 over last year.

As I go through the three major businesses, I'll provide more insight into the changes from last year, using earnings per share as the measure. I should should note that PSEG had an average of about 8 million more shares outstanding for the quarter compared to last year, a result of our prior mandatory convertible security. Full quarter to quarter reconciliation of our operating company's results can be found on attachment 6 of the press release.

Starting with PSEG Power. We continue to benefit from strong operations throughout our generation fleet and in particular, continued improvements in our nuclear operations. During the critical summer months, our New Jersey units at Hope Creek and Salem ran at capacity factor of nearly 100%, coupled with a strong performance at Peach Bottom our nuclear options added about $0.03 per share from the same quarter of last year. For the quarter, our nuclear operations have shown tremendous improvement.

Our New Jersey units ran at a capacity factor of 95% versus 86% for the first 9 months of 2005. Our [inaudible] has a year-to-date capacity factor of 96%, a 6% improvement over last year's results of 90%. I'm also very pleased to report that Salem Unit 2 sank to the grid earlier this morning after a successful refueling outage completed in just under 21 days, 10 hours, a record time for that site. Congratulations to Bill Levis, Tom Joyce and our entire team for continued good work.

As you're aware, our Salem and Hope Creek units are currently run under a nuclear operating services contract with Exelon. PSEG has provided notice to Exelon that is electing to continue the contract for 2 years, from which time the companies will move into a transition phase. At the same time, PSEG continues to consider a number of long-term alternatives when we expect to define a long-term strategy well before the two-year period is completed. Alternatives range from rebuilding our stand alone nuclear capabilities to long term Exelon operations that is could also be accompanied by our swap in nuclear capacity. PSEG also retains the right to extend the transition phase of the contract for an additional year if it so elects.

Power also saw a large margin improvements as a result of higher contract prices and other market hedging activities. Even our strategy of contracting for a few years into the future, we generally see market prices impacting us on a lag basis. Higher realized prices from our forward sales contracts added $0.34 to Power's earnings for the quarter versus last year's results. One driver of this increase is recognition of a full quart of the 2006 BGS auction results. This auction cleared, as you know, at $102 per megawatt hour, and replaced the 3-year-old BGS contracts that rolled off at $55 per megawatt hour. This added $0.17 per share to the third quart results improving the seasonal effect of pricing. Year to date our margins have improved by over $6 per megawatt hour versus the same period last year, an increase we expect to sustain through year end.

The impact of Power's Linden generation station, which was placed in service of May of this year, resulted in reduction of $0.06 over the third quarter of of 2005. This impact predominantly reflects higher interest and depreciation costs. Also the third quarter this year overcame the absence of nuclear decommissioning trust fund gains of $38 million that were recognized in the third quarter of last year, these prior year gains were the result of a fund restructuring and asset rebalancing.

We continue to make constructive progress on an environmental resolution regarding our 600 megawatt Hudson coal-fired generation facility in Northern New Jersey. The Company has been in negotiations with the EPA, and the NJDEP on a proposed alternate pollution reduction plan. The plan would achieve similar emission reductions to those contemplated in a 2002 agreement and allow for the Hudson unit to continue operating on coal beyond the current December, 2006, deadline. Such agreements would allow investments in pollution control facilities of approximately 400 to 500 million to be made over the next several years. While these negotiations are ongoing, Power is hopeful that a settlement can be reached in the near future. An anticipation of such a settlement, Power has increased its environmental reserves in the third quarter by approximately 15 million or $0.06 per share to cover costs expected as a result of this potential agreement.

Now turning to PSE&G. For the quarter the Utility was down 29 million or $0.13 per share compared to the third quarter of 2005. The absence of rate relief to offset the expiration of the excess depreciation credit was responsible for $0.04 of this decline. Weather, while above normal, was below last year's record-setting levels and resulted in a $0.03 reduction quarter over quarter. Third quarter 2006 was 9.6 above normal while third quarter '05 was 29.8% above normal. Moderately lower usage further reduced earnings about $0.02 per share.

Although PSE&G was challenged during the quarter with six major summer storms with record heat that pushed electric demand to an all-time peak, it continues to perform the top cortile in national peer panels for frequency of customer interruptions, average customer restoration time and a number of other variables. Also the quarter was affected by higher depreciation and amortization and increased OEM expenses totaling $0.03 per share.

On the regulatory front, we have reached a settlement agreement with BPU staff and public advocate and other intervening parties on both the gas base rate case and the electric distribution financial review. Be cautioned these settlements are not final until acted upon by the BPU, we anticipate the approval and the implementation of the new rates shortly. Our original gas petition was for 133 million, the settlement provides a 40 million increase in rates and a $39 million reduction in depreciation and amortization expenses resulting in 79 million of incremental margin.

On the Electric side, we sought to eliminate the 64 million rate credit authorized in August of 2003. The continuation of the rate credit has put pressure on PSE&G's earnings this year. The settlement eliminates most of that [great] credit which, with volume growth, represents additional revenues of 47 million. PSE&G has agreed that these base rates would remain in effect until November of 2009. We also settled the BGSS filing that will lower residential gas bills by 6%, reflecting a lower commodity costs. Of course changes in the BGSS rates have no earnings impact to PSE&G.

Overall, we're pleased that we were able to lower gas residential bills by 4.4% and only increase electric bills by less than 1%. These settlements are fair and give us the opportunity to earn ROE of 10%. But more importantly, they reflect a regulatory [climb] in New Jersey that recognizes the importance of outstanding utility service to its customers while providing a fair return to investors. We're pleased that the BPU staff and the public advocate have been able to focus on these traditional issues so quickly after demanding merger proceedings.

Now filing onto Energy holdings. As you recall, earlier this year holdings was very successful in selling it's interest in two coal-fired plants in Poland and its interest in RGE, the Brazilian electric company. These sales resulted in net proceeds of approximately 612 million, a net after-tax gain of approximately 51 million, improved the equity of holdings by 240 million. These sales, coupled with operating cash flows resulted in holdings accumulating over 715 million of funds which it invested on our short-term basis with PSEG. In September, holdings utilized these funds, returning 425 million of capital to PSEG and calling 300 million of debt for early retirement.

Operating earnings for the third quarter of '06 were up sharply from a comparable period last year. The results were largely driven by our Texas generation business, as the improvement in spark spread in the Texas market continued into the third quarter. Our 2,000 megawatt plants have operated very well which will be able to benefit from high spark spreads available in the market.

The margins achieved this year will be difficult to repeat in '07, as a result of projected lower spark spreads, planned maintenance outage and more [indiscernible] weather. Recent drop in prices at the end of the third quarter led to a sizable unrealized gain for certain of our fixed price contracts at [Ty] that are acquired to be mark-to-market to earnings under the accounting rules. We have a number of contracts for delivery over the balance of the year, a portion for 2007 and one longer-term contract that runs through 2010. As prices declined at the end of the third quarter, these fixed-price contracts became more valuable, leading to an unrealized gain.

Holdings also reported continued lower interest expense for the quarter driven by the redemption of debt in January and a short-term investment of cash in the asset sales of PSEG. The cost associated with the call of 300 million notes in September totaled approximately $0.03 per share and were included in third-quarter results. Also, Holdings had lower income taxes this quarter relative to last year, contributing approximately $0.09, largely driven by the absence of tax expenses incurred in third quarter 2005 in connection with repatriation of funds under the Jobs act. Balance of Holdings businesses including resources leasing businesses, while both South America distribution investments and domestic contracted generation plants are meeting this year's expectations.

That concludes my review of the business segments. Right now I'd like to summerize the mark-to-market earnings impact. We've experienced some meaningful mark-to-market impacts and have added Schedule 11 to the earnings release. This indicate that is the third quarter impact of PSEG is $0.17, $0.05 and $0.12 for Power and Holdings respectively. As specified in this attachment, year to date PSEG has realized a benefit of $0.16. We currently expect about one-third of that to reverse over the fourth quarter.

Finally, I'd like to make some comments regarding our consolidated cash flow and liquidity. Through September cash flow from operations has been very strong generating more than 1.4 billion from operations. This represents more than 500 million of an increase versus the same period last year, which is largely driven by increased earnings of power and reduced collateral requirements. In addition to meaningful excess cash from ops, the after-tax proceeds from the sales of assets at Holdings contributed an incremental 600 million of cash in 2006. Consistent with these factors, combining PSEG and Power had available liquidity of almost 3 billion.

From a financing perspective, in April of this year, we hit a maturity of 500 million at Power, and maturities totaling 322 million earlier at PSE&G. Through September, strong cash flow has allowed us not to refinance these maturities. From a balance sheet perspective, we made significant improvements. At the end of 2005, our debt to capitalization, as defined by our lenders, was about 60%. As of September, this ratio had fallen to 53%, driven by stronger earnings, collateral reductions and other equity improvements.

That concludes my remarks. Just my last comment before we take questions is that we are looking forward to seeing everybody at the EI, and I'm pleased to say that Ralph Izzo will be joining us for the duration of the conference and giving us his assessment of the Company's current position and prospects. As you know, Ralph has recently been promoted to President and Chief Operating Officer of PSEG after serving as President of PSE&G for the past 3 years.

Thanks, operator, and we can now open it up for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session for members of the financial community. [OPERATOR INSTRUCTIONS] One moment, please, for the first question. Our first question comes from the line of Paul Patterson of Glenrock Associates, please go ahead.

Good morning, guys.

Good morning.

The mark-to-market gains, how do we model that going forward? I mean, what's the expectation in the 2007 numbers for any mark-to-market adjustments? Do you expect any of this to reverse out? Just, what sort of expectation, I guess, for that since it was a bit of a driver this quarter?

It was a bit of a driver. Paul, it does move around. I think over the long run it's expected to be zero, to be honest. If you just go back even the first couple quarters, the first quarter this year, it was down $0.07, the second quarter was positive $0.06, so halfway through the year, we're basically zero. We were $0.17 up this year, the biggest part of that was Texas. It's one of the few contracts we mark-to-market. And as I said, about a third of that based on quarter and forward prices would expect to reverse. Just in terms of our contracts, really the majority of our activities are either get hedge accounting, which is not mark-to-market, or get normal purchase in sale, that's for the majority of our contracts at Power and most of our contracts at Holdings. The one, the major exception we have is a long-term contract we've got for 350 megawatts for 4 1/2 more years at Texas. So long run, Paul, I think it's going to move around quarter to quarter, but as we think about our business going forward, it's a net neutral.

Okay, great. And weather versus normal, you mentioned what it was versus the year-over-year, but what is it versus normal, I guess, do you have a rough idea of the last 9 months, how much weather has contributed? Versus normal?

Last 9 months were below normal.

Okay.

By by about 10-- by about $0.12 Two-thirds of that gas.

About $0.12 a share is lower than what normal weather would have brought you? Right?

Yes, that's largely gas from January, February.

Right, okay. Then finally, when is the settlement effective? I know you probably mentioned it but somehow I got distracted when you were talking about it. When does the settlement become effective, I guess, I mean after the BP rules on it?

The settlement has to be reviewed by the BPU, we're hopeful that can be done in the near-term. And we are hopeful that upon it being approved, rates would be effective very shortly thereafter, especially, we're obviously, especially sensitive and optimistic that they will become effective before the winter heating season.

Was this expected in your 2007 guidance? Was this anticipated or something similar to this?

We generally anticipated getting a fair resolution of this, though this is within the range of expectations.

Thanks a lot.

Thank you very much. Our next question comes from the line of Ashar Khan of SAC Capital Management. Please proceed.

Good morning, Tom.

Good morning.

Could you just go back, you had mentioned reaching debt targets at September. And I was going back to the call a month ago. At what point, based on your outlook for next year, do you start having excess cash or capital return to shareholders? Or where does that happen in your forecast?

Sure, Ashar. Just to review our debt to cap is 53%, there's different ways to look at it, but the one we look at the most consistently is how our lenders define it. We expect to have continued improvements to that. In terms of when excess cash can be used to grow the business as opposed to retired debt, if that's what you're getting to, I think that's really an '08 question. We still want to use cash fourth quarter in '07 to continue to improve our credit profile both in, and as you know it's a mixture of cash flow coverages, cash flow to debt, as well as debt to cap. So as we look at the majority of those, I think it's realistically '08 before we would have cash flow that can be used for descresionary growth of the business.

Okay.

That's outside. I mean, we totally feel comfortable we've got the cash there to run the business, including some CapEx and other fundamental business requirements, but in terms of cash for additional investments, share repurchase, things like that, in my mind that's an '08 question.

And, Tom, can you just mention, I don't know if could you update us on what your hedging is for the next couple of years? Where you are?

It's pretty consistent, at least the ranges are still within where we are, i.e., for-- we've shown this slide before, for 2006, we're at over 95% for the remaining couple of months. For '07 we're 85 to 95, for's '08 we're in the 65 to 80 range. '09 would be less than 50%, is about how I'd characterize it right now. As we characterize those percentages, the denominator is really our base load nuke and coal. That's the majority of our margin, that's the easiest to project. As you know looking forward, your gas generation, A; it's less profitable and, B; the volume is a little harder to measure because that's based on regional prices, weather and all sorts of things.

Okay. And then just going to, I don't know if Ralph or you could address it, as earnings grow huge, the next couple of years, how do you look at the dividend? In respect to earnings in terms of payout? And if could you give some indication as to how you would look at it?

Ashar, this is the last question and I got to, we've got to move on. I think in general, we've shown improvement to the dividend of the last couple of years to grow for the dividend, clearly, our financial picture is better, so as we assess the dividend in conjunction with our year-end financial planning process, we will look to whether we have the ability to continue our growth and whether we can do better. But other than that, it's going to be hard-pressed to comment, those are thing that we do in conjunction with our year-end financial and business planning process, it culminates in our December board meeting. Next question, please.

Thank you very much. Our next question comes from the line of [Jaro] [Chung] of Banc of America Securities, please go ahead.

Hey, guys.

Hello there, how are you?

Can you guys give us an update on the supply contract you have in Connecticut? I think it's supposed to reprice in '07?

Yes. Our contract with the utility up in Connecticut does end at the end of this year. And we would, it was signed three years ago at this time, I think I've said before, price-- it looked like a [good] contract but is materially below market. So as we go forward in '07 we would expect materially better profitability out of our Connecticut unit, especially Bridgeport, our 375 megawatt coal plant, New Haven is largely [indiscernible], that's not going to change as much. We've done some forward hedging, as you might expect, but we would expect to get prices running through income statement in January more reflective of the market.

Okay. So, going forward, we should expect a bit of an upside from the current Connecticut contract?

Yes, only because we'd expect to be earning margins that reflective of current market conditions as opposed to very old market conditions

Okay. Just one more question. Holdings have been a monetizing assets quite a bit. Does going forward, how should we be thinking about Holdings as a part of PSEG? Is this something that you guys are continuing to fold completely in the long-term? Or is this something that we should see as a part of PSEG in the long term?

I think we'll continue to look for opportunities to monetize assets. I think we've shown a couple this year that have been quite beneficial for debt holders and for PSEG equity holders. I hit the staff on those and that's been out there for a while. I think as we look forward, we'll, as we've done before, we'll assess markets, assess the fit. But we'd likely continue to seek opportunities to monetize assets.

Okay. Great. Thank you, Tom.

No material change in the pace of those. That's one of the things we'll look at going forward.

Okay. Great. Thanks.

Thank you. Our next question comes from continue have the line of Michael Goldenberg of Luminous Management, please proceed.

Good morning, gentlemen.

Morning.

I think I missed a couple of things I just wanted to confirm. Did you say on the Hudson plant the extended capital expenditures is 4 to $500 million?

Yes. That would be the environmental CapEx, I think we had it in our Q last quarter and we'll have it again.

Has that been updated? I'm just trying to understand if it's a view that hasn't been changed or has been updated and you still believe it's 4 to 500 million?

We still believe it. It is consistent with the number that we'll have in our Q that we expect to file later today. It was in our Q, at least the prior Q, maybe going back a year or so, it might have been $50 million less.

And should the settlement not be reached, you do not plan to shut the plant off on December 31st, right? Or, in fact, PGLP would PJM just not allow you to?

That's hard to forecast. I think as I said, we are hopeful of a constructive resolution. The fact that we took a reserve of $15 million, though, being a negative this quarter would be consistent with us having a reasonable expectation of getting a constructive resolution. We have just for technical reasons, we did put PJM on notice that we do not have a final resolution and, therefore, that could cause an issue in January, but that was more of a technical filing. At this point, it's hard to get into the other what ifs.

Gotcha. My other question deal 's with the current rate settlement that you've reached and congrats on doing that. Wanted to ask you, you mentioned there was a depreciation credit that will come into effect, or shall I say non-cash adjustments, that will not affect customers that should be flown through the income statement. Could you outline them?

The major pieces, part of our increase on the gas side of 133, requested an increase in depreciation. I think it was of about $50 million.

15 or 50?

I'm sorry?

15 or 50?

Five zero, it was in that range.

Okay.

What we ended up doing is getting an increase of $40 million that would flow in through the impact customers' rates, we actually decreased the depreciation or extended the useful lives of the plants. It's now less, the depreciation rate is less than 2%, which would suggest a fairly long life, which is certainly consistent with how we use our gas facilities, pipes in the ground last a long time.

So, BGS aside, besides the $87 million increase from increase in customer rates, how much of that going to be additional benefit from change in the depreciation?

There's another 39 of non-cash expense reduction, if you will.

Gotcha.

So the total impact to our EBIT would be the 87 plus the 39.

Okay. If can you comment in general about how the rate settlement compares to expectations, or can you talk about implied, earned ROE, or anything in that regard?

I think what I'd say is, the gas, that was a full rate case so that does contemplate a 10% ROE, with the capital structure we've got, 47.5, 48% equity, so it's very consistent with our expectation with our balance sheet. The 10% I believe is what we got in our last cash rate case which was early '02. So those are reasonable numbers. The Electric, we keep calling it a distribution financial review, it was not a full rate case. So, the prior ROE of 9.75, it's back from August of '03 is still part of that. And we were able to get 47 of the 69, I think. So our sense is that, there's certainly reason that we could ask for more, but it seemed like a reasonable result, consistent with our general expectations of having being treated fairly over the last 100 years. And we are appreciative that after a very extensive, exhaustive merger proceeding, folks were able to diligently tackle this quite promptly.

Okay. Just so I understand, if I'm not mistaken, following the merger breakup, you said that you were expecting, was it 10% net income growth that PSE&G into '07? And correct me if I'm wrong on that number. Is that number expected now to be same, higher or lower?

It's in that range.

10% of the correct number?

Yes. It's generally in that range. We haven't updated specifically subsidiary guidance, we've obviously got '06 guidance, I'm sorry, '07 guidance, got a growth from '07 to '08. May, probably more toward the end of the year, update specific subsidiary guidance.

But rate -- the rate settlement doesn't change that?

Correct. It's consistent with our prior expectations.

And you expect the new rates to be in effect January 1st?

I think as I said earlier, we would hope that the BPU would be able to look at this in the near future, it's not formally docketed but we would expect it to be looked at shortly and reviewed. and if approved by the BPU, we would be hopeful that rates would go into effect quite promptly. And particularly we could like them to go into effect for gas prior to the heating season, which, as I was trick-or-treating last night in my shorts, it wasn't in effect last night, but we're hoping the heating season does start soon in New Jersey.

Thank you very much for taking the time once again, thanks.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press 1, 4 on your telephone. Our next question comes from the line of David Frank of Pequot Capital Management, please go ahead.

Yes, hi, good morning.

Morning.

I just wondered if you could, maybe I was a little confused before. The total market mark-to-market for the quarter was $0.17 or was that for 9 months?

That is for the quarter. For the 9 months it's 16. It's on the attachment to the press release.

So the 148 has $0.17 of m-to-m gains in there?

Correct.

Okay. Texas spark spreads, could you tell us what the realized spark spreads was for you guys in the third quarter? The average?

I've got it year-to-date, it was up in the-- generally year-to-date it's in the 19, 20 range.

And in the quarter, it was something significantly higher than that, I would imagine?

It was, because I'm thinking year-to-date in June it was 16, 17. So it did average up during the quarter. And then expectations for the year is going to, the average in the fall will be in the 18 range and next year, I think the forwards are in the 14, 15 range, last I saw.

14 or 15, okay, great. Thank you.

Yes.

Thank you. Our next question comes from the line of Stephen Haung of Citadel Investment Group. Please proceed.

Hi, good morning.

Good morning.

Wanted to just follow up with your lease portfolio. Has there been any new developments in that regard with the IRS?

No. No, there have not been any developments. We will update the rolling exposure we have in our Q, but no, there have not been any developments.

And it continues to be something that you can't easily unwind, right? If you wanted, to to help generate some cash proceeds?

I'd say in general, the leasing portfolio is one we expect to be in for a long period of time. Most of them, most of the time the leases do have tax recapture if there's sale or exits at early time. That being said, there have been some leases we bought in the secondary market are coming to the latter part of their lives and we have had some gains. But those are generally exceptions, rather than expectations. Just as examples, we had the Seminole deal that we sold and had a nice gain the end of '05. And then prior, about a year and a half ago, we did have a lease out in the midwest with one of the generation companies, that they bought us out of.

Do you have any other, Tom, do you have any other leases that are close to the end where the counter party may look to buy out the leases again?

Some pieces here and there, there is a lease in the out in the northwest that we expect to file. It will be in our Q. We expect to buy out in the mid $20 million range, something like that, but it's out at about 2 years, '08, '09. But nothing certainly [inaudible].

Are your Connecticut plants, following up on Jaro's question, when you say that you're not looking to recontract, does that mean that you do not win the latest auction load?

I'm not sure, for confidentiality, we're allowed to comment on what we did and didn't win. Would I say that we generally expect to be -- there's no material contract that we won such that we would feel an obligation to report it, put it that way. There's obviously forward hedging that we do, but nothing on the material side that we feel it was reasonable or meaningful to invest or to report a specific contract.

And then can you remind us again under the hypothetical situation of you guys looking to split your regulated and unregulated, would you need New Jersey BPU approval?

We generally don't believe that we do. That being said, it's, I'd be-- I want to be cautious for providing detailed legal opinions, but we generally provide that the current structure would allow for a separation. I think that's, we've said that that's something that we would think about a little longer-term but certainly not on the near-term action list.

Great, thank you.

The near-term action list is very much in the meat and potatoes of [inaudible] when he's out there for a couple days, very much meat and potatoes, getting our feet on the ground, getting fair rate treatment of PSE&G, which we seem to be close to doing. Getting operations running well, it's certainly, Salem with their return to ops is super. And other blocking, tackling.

And then Tom, one last thing. In your analyst day coming up in December, what should we be expecting for that, other than segment details? Are you guys going to help us out with longer-term guidance? What are you guys thinking about?

We have to -- we may touch on that a little bit at the EEI. And we'll hopefully give folks a good update. As I said, I'll be out there, Ralph will be out there for the duration for 2 1/2 days. I'm looking forward to showing him that it's, that there's not a lot of fun and games, not a lot of time at the gambling table with these things. But so we hope to give people a detailed update. We want to circle shortly after that and just make sure that the December 4th date is the right time to have our investor conference. We just had a discussion the last couple of days [inaudible] that may be, too close to the EEI, so it might be some of the same commentary, but we'll get back to you out there.

Okay. So, EEI you will give us the longer-term drivers?

Yes. At EEI we'll speak to some of the longer-term drivers and then want to come back at a half-day investor conference that's currently scheduled for December. We just want to think about whether if we push that off until the first couple of months of '07, whether that wouldn't just allow us to have more time between EEI and provide more depth to the story, hopefully. We'll update you next week.

Okay. Sounds good.

Thank you. Our next question comes from the line of Andrew Levi of Bear Wagner Specialists.

What do you mean no gambling? [LAUGHTER] Don't be shy.

I can't stay up that late.

Most of my questions have been asked. But just to understand, your comments from before, I guess after the conference call, [inaudible] after the merger ended, there was probably a little bit more emotion. So it sounds like that, I guess on the conference call you seemed a little bit more hot and heavy back then about possibly taking a look at breaking yourselves up. But I guess for the time being, which is probably the wise thing, is just really get the house back in order, focus on the regulatory environment, get that back in order and then go from there. Is that kind of where we're at?

I think it that's right, Andy. I think it was a combination that, perhaps discussed it more, and then I think some of the subsequent reports in the press may have picked it up as suggesting it might have been more imminent. Clearly it's something that companies like ourselves need to assess. But I think it's something that we look at over a longer-term basis. Not an imminent question.

And then just real quick, part B to that is, you're not 100% sure whether you would need regulatory approval from the state of New Jersey, is that kind of up in the air? Or is that something you're pretty certain that if you wanted to do some type of transaction a year or two down the line, it would be fairly easy to do, as far as the regulatory aspect of it?

I'd stay with where we are, Andy. We don't expect that we would need it, but I'm not in a position of getting definitive legal opinions. But that's the-- you think that there's the route for us to do it if we go like that.

Great. Thanks.

[inaudible] going down, Andy, both at gas and only up a little electric, so, I don't want to see any customer letters.

Yeah, yeah. Have fun this weekend.

I have no further questions at this time.

Okay. Thanks very much. Thanks for joining. We look forward to seeing everybody, Ralph, I and the team look forward to seeing everybody, and certainly pleased with the quarter, earnings up, we appear poised to have a settlement at PSE&G, which is really one of our key action items coming in. We continue to have a good ops story, congrats once again to Bill Levis, Tom Joyce and the [inaudible] team that's [inaudible] for a 20 day, 10 hour refueling average. So, see you next week.

Ladies and gentlemen, that does conclude your conference call for today. You may disconnect and thank you for participating.